Bank Subsidiaries and Affiliates_Part2.pdf

X. Other — Bank Subsidiaries and Affiliates • Organizational charts that show the relationship between the holding company (if any), the bank, and the affiliate; • • Officer and Director lists for bank and affiliate; Entity formation documents for the affiliate (Articles of Incorporation and Byla...

X. Other — Bank Subsidiaries and Affiliates • Organizational charts that show the relationship between the holding company (if any), the bank, and the affiliate; • • Officer and Director lists for bank and affiliate; Entity formation documents for the affiliate (Articles of Incorporation and Bylaws); For loans originated by the affiliate: investor contracts, including Investor Lock Agreements, Loan Sale Agreements and Guarantees with investors, to determine the bank’s potential liability; • • • • Interview notes with bank management and the affiliate about the relationship between the two entities and how it works in practice (not just as written); Board minutes of bank and affiliate; and Any line-of-credit agreements with the bank or any entities with which the bank and/or affiliate both have credit lines (reflecting shared source of funding). 5. If the Region has conducted a review of the affiliate’s activities and believes that a violation has occurred, in cases where a 15-day letter is appropriate, a 15-day letter must be sent to both the bank and the affiliate informing them of the preliminary finding and providing them an opportunity to respond. In instances where an affiliate is deemed not to be an IAP, and there is a potential fair lending violation, the FDIC must determine if the bank is liable on its own actions. Prior to sending the 15-day letter, the examiner must determine whether the bank participated in the credit decision for the loans at issue, and thus can be deemed a “Creditor” under the Equal Credit Opportunity Act (ECOA). Regulation B defines the term “Creditor” as a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit (i.e. did the bank establish the underwriting standards for the affiliate). The term “Creditor” includes a creditor’s assignee, transferee, or subrogee who so participates. For purposes of ECOA’s discrimination provision 4 and its discouragement provision, 5 the term “Creditor” also includes a person who, in the ordinary course of business, regularly refers applicants or prospective applicants to creditors, or selects or offers to select creditors to whom requests for credit may be made. A person 6 is not a “Creditor” regarding any violation of ECOA committed by another “Creditor” unless the person knew or had reasonable notice of the act, policy, or practice that constituted the violation before ____________________ 4 5 6 12 C.F.R. § 1002.4(a). 12 C.F.R. § 1002.4(b). “ P erson” means a natural person, corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative, or association. 12 C.F.R. § 1002.2(x). X–5.4 becoming involved in the credit transaction. 7 One of the primary purposes of this analysis is to determine whether the bank has any independent liability under ECOA. 6. The following applies: 1) in instances when a 15-day letter is not required, or 2) in instances when a 15-day letter has been sent and, after reviewing the response to the 15-day letter, DCP continues to believe that a violation has occurred. If the affiliate is an IAP, the violation should be cited in the ROE and enforcement action against the IAP directly should be considered. If the affiliate is deemed not to be an IAP, the FDIC will refer the case to the appropriate Federal agency with primary enforcement responsibility, such as the Federal Trade Commission (FTC), the Department of Housing and Urban Development (HUD) or the Board of Governors of the Federal Reserve System (FRB). 7. Regardless of the affiliate’s IAP status, the violation should be documented in the ROE. Section 10(b)(5)(B) of the FDI Act requires that FDIC examiners make “a full and detailed report of condition of any insured depository institution or affiliate examined to the Corporation.” • The examiner should include appropriate comments on the Examiner’s Comments and Conclusion pages of the ROE. The comments should identify the specific affiliate and describe how that affiliate violated fair lending or other consumer protection laws and regulations. • The examiner should include a description of the affiliate’s violation on the Violations page of the ROE. In situations where the affiliate is not an IAP, a summary should be included at the top of the Violations page explaining that because the entity is not an IAP, the FDIC will refer the matter to the appropriate Federal agency with primary enforcement jurisdiction over the entity. However, violations of affiliates, whether an IAP or not, should not be entered in FOCUS. • Whether or not the affiliate is an IAP, the bank remains responsible for robust oversight of third-party activities and quality control over those products and services provided through third-party arrangements, in order to minimize exposure to potential significant financial loss, reputational damage and supervisory action. Where a bank has failed to fulfill its oversight responsibility, and particularly where the bank has had prior notice of affiliate violations, the bank should be criticized for a lack of proper oversight and required to establish proper controls. 8 ____________________ 7 8 12 C.F.R. § 1002.2(l). The regulation states that the term “ Creditor” does not include a person whose only participation in the credit transaction involves honoring a credit card. See FIL-44-2008 (Guidelines for Managing Third P arty Risk). FDIC Consumer Compliance Examination Manual — November 2023 X. Other — Bank Subsidiaries and Affiliates • Whether or not the affiliate is an IAP, the bank’s overall CM S and consumer compliance rating (and potentially CRA rating) should be reflective of the affiliate’s violations. 8. All Regional and Washington Office consultation policies should be followed throughout bank subsidiary and affiliate reviews. FDIC Consumer Compliance Examination Manual — November 2023 X–5.5